GM awards US$7 billion in IT outsourcing contracts


General Motors Corp. Thursday awarded IT contracts worth approximately US$7 billion over five years to six vendors, including Electronic Data Systems Corp., which is now responsible for most of GM’s IT operations, as well as IBM Corp. and Indian offshore firm Wipro Ltd.

The other winners of outsourcing deals from the automaker are Hewlett Packard Co., Capgemini and Covisint, a subsidiary of Compuware Corp.

EDS will continue to have the most business at GM, but somewhat less than it has today, GM officials said in a statement, while HP and Capgemini will increase their existing business.

IBM, Compuware Covisint and Wipro “will continue to be strategic IT partners to GM,” the automaker said. It planned to offer more details about its IT plans later this morning.

“This is a significant milestone for General Motors and its Information Systems & Services Group,” Ralph Szygenda, Group Vice President and CIO at General Motors, said in a statement. “Of critical importance is the focus we have had on driving innovation and supporting future globalization and digitization of the company.”

The exact pricing and contract splits were not immediately available. Based on current expenditures, GM would have laid out about $15 billion over the next five years on IT, but it also said the changes announced today would cut costs.

“Over the next five months, we will focus our efforts on assuring a smooth transition,” said Szygenda. “Our primary goals are to avoid any business disruption and ensure our efforts fully support the company’s global operations.”

GM’s announcement, which came before the financial markets opened, has been one of most anticipated outsourcing decisions ever — and not just because of the stakes involved for vendors.

Szygenda, in an interview last year, made it clear that he wants to use IT to help transform his company and said GM’s outsourcing contracts won’t be based on low-price alone.

“You’ve got to realize that information technology is a catalyst for change at General Motors. The whole end goal … is to build the greatest cars and trucks, not to build great IT — it’s just an enabler. Whoever can help me do that, do that together … that’s going to be the company that wins at General Motors,” Szygenda said.

But the company is also facing serious cost pressures and last week posted a $4.8 billion loss for the fourth quarter.

EDS in Plano, Texas, has the most at stake. The company now manages about two-thirds of GM’s IT operations with the remainder split among multiple vendors.

GM began outsourcing IT in a major way in 1996 when it took EDS, then its IT subsidiary, and turned it into an independent company and gave it a 10-year contract that expires this year. Ross Perot founded EDS in 1962 and GM acquired it in 1984.

GM’s move to award its IT work to multiple vendors is in keeping with a broad IT trend toward multi-sourcing — reducing a company’s dependency on any one vendor by dividing up more of the work. Multi-sourcing also means ensuring that vendors work well together; GM has been particularly interested in getting vendors to improve integration and adopt standards.

Along those lines, Fred Killeen, GM’s chief technology officer, played a key role in getting Sun Microsystems Inc. and Microsoft Corp. to cooperate. The two companies are working with GM on a single sign-on standard. Without that effort, GM would likely have to turn to customized and costly solutions, Killeen said in an interview last year.

It was not immediately clear what portion of the automaker’s IT spending will go to offshoring work. More and more companies are using offshore outsourcing to cut costs, either by hiring foreign firms directly or signing global delivery agreements with U.S.-based firms, which then have portions of the work done overseas.

Houston-based Technology Partners International Inc. (TPI) said last month the trend is toward offshoring. With respect to the latter, TPI said that of all the outsourcing contracts it worked on last year – which amounted to about one third of all major outsourcing deals signed by large firms worldwide – more than half involved some offshore component, far more than prior years.

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